This is how big BMW's China problem is

German companies are increasingly relocating parts of their operations overseas, a trend affecting firms of all sizes and sectors. Recent reports indicate that Gardena, a renowned manufacturer of garden tools based in Ulm, plans to cut 250 jobs domestically while shifting part of its production to the Czech Republic. This represents a 10% reduction in its local workforce. Similarly, major corporations like BASF, one of the world’s largest chemical producers, are also moving operations abroad. Earlier this year, it was revealed that BASF intends to transfer service roles to India, which has placed Berlin’s facilities under particular strain due to potential job cuts. This movement of businesses has been ongoing since at least 2021, with a notable acceleration observed over the last few years. According to data from the Federal Statistical Office, between 2021 and 2023, approximately 1,300 German companies with more than 50 employees moved portions of their business functions overseas. This accounts for 2.2% of all such companies operating in Germany during that period. The relocation efforts are estimated to have resulted in the loss of roughly 50,800 domestic jobs. Concerns about the continuation or intensification of this trend have grown due to Germany's relatively high energy and labor costs. Despite these concerns, there are indications that the pace of such relocations might be slowing down. The state-owned development bank KfW noted in June that many medium-sized enterprises are pulling back from international ventures. Their research indicated that the number of German medium-sized companies engaged in foreign trade fell from around 880,000 in 2022 to approximately 760,000 by the following year. This decline is attributed to deteriorating trade conditions, including geopolitical tensions in regions like Ukraine and the Middle East, increased competition from Chinese manufacturers in critical industries, and the U.S.'s protective trade policies. Contrasting this perspective, the Association of German Chambers of Commerce and Industry (DIHK) suggests that cost pressures on German industry have reached unprecedented levels, prompting many firms to consider larger investments abroad. According to the DIHK’s business climate survey from early 2026, 43% of industrial companies are planning foreign investments this year, three percentage points higher than the previous year. The primary motivations cited include rising operational costs, structural challenges within the economy, and weak economic performance in Germany as a business hub. Historically, foreign investments often bolstered domestic operations, contributing positively to local employment through market expansion and enhancement of sales and customer service capabilities. However, the DIHK survey indicates that the proportion of German companies investing abroad mainly for market development purposes has decreased slightly, from 30% to 28%. Today, foreign investments are largely driven by cost considerations, which can lead to substantial reductions in staffing at domestic locations. As such, these investments are now primarily focused on reducing expenses rather than fostering growth. The overall trajectory of foreign investment appears complex and multifaceted. According to Professor Steffen Müller of the Leibniz Institute for Economic Research Halle (IWH), direct investments made by German companies abroad remain well below their peak levels. Data from the Bundesbank shows that annual transaction values related to these investments ranged from €120 billion between 2017 and 2022, dropping to €80 billion in 2024 and under €100 billion in 2025. These figures suggest that the volume of capital flowing out of Germany does not appear to be significantly higher compared to previous years.